The HKTDC Export Index jumped into expansionary territory with a 29-quarter high of 54.1 in 2Q18, up from 49.4 in 1Q18. This indicates that Hong Kong’s exports can be expected to sustain their current level of growth over the near term.

Among exporters there was a broad consensus as to the prospects of the major overseas markets. With a score of 54, the EU returned to expansionary territory for the first time since 2011, while the figure for the Chinese mainland (53.8) was a 29-quarter high.

Further confirming that the overall export sentiment was improving, the Trade Value Index (54.6), Procurement Index (57.3) and Employment Index (53.2) all remained well above the 50-point threshold.

Despite this, it was clear that rising mainland labour costs remained a concern, with 62% of respondents reporting such costs had increased in 2Q18, a slight increase on the 60% reporting wage rises in 1Q18.

There were also signs that exporters become more pessimistic as to the likely consequences of the ongoing China-US trade friction, with some 43% of respondents fearing an ultimately negative impact, compared just 26% in 1Q18.

Despite this shadow being cast over Hong Kong’s future export performance, the impact of this trade friction has yet to become apparent, with a hefty majority of respondents (77.4%) saying their export performance has yet to be affected.

The HKTDC Export Index jumped into expansionary territory for 2Q18, indicating that Hong Kong’s exports are set to sustain their current growth momentum over the near term. With 2Q18 returning an overall figure of 54.1, not only was it a significant improvement over the 49.4 recorded for 1Q18, it also saw the Index hit its highest level since 1Q11, some 29 quarters back. This represents a major upward shift in sentiment among Hong Kong exporters, with their apparent optimism boding well for export levels over the near term.

Despite this overall upturn, a mixed picture emerged of the likely export performance of the major industries. On the plus side, electronics (55.2) and machinery (54.9) were expected to perform exceptionally well over the near term, with both recording their highest level since early 2013. Toys (53.2), meanwhile, maintained the upward trend it has enjoyed over the last two quarters and stayed clearly in expansionary territory. While clothing (43.6) stayed in contractionary territory, its 2Q18 reading still represented a 17-quarter high for the sector. Unequivocally down, though, were timepieces at 49 (57 in 1Q18) and jewellery at 41.3 (44.1 in 1Q18), an indication that export performance might dip in both sectors in the months to come.

Despite the mixed performance of the major industries, exporters maintained a broad consensus as to the improved prospects of many of the key overseas markets, with the level of demand from such countries ultimately determining Hong Kong’s export levels. Most strikingly, the EU returned to expansionary territory for the first time since 2011, while also outperforming the other major markets in 2Q18 with the overall highest reading of 54 (up from 49.1 in 1Q18). Second-placed was the Chinese mainland, with its reading of 53.8 representing a 29-quarter high. Confidence was also up with regard to Japan (51.3) and the US (51.2), with neither country having enjoyed such an endorsement for several years.

In line with the favourable view of the likely export performance over the near term, the Offshore Trade Index also moved into expansionary territory in 2Q18 with a score of 51.1 (up from 44.1 in 1Q18). This demonstrated a clearly positive view as to the likely performance of offshore trade – shipments not passing through Hong Kong, but handled by Hong Kong exporters – over the near term.

Along with the anticipated increase in overall export value, unit prices are also expected to rise, a likely development that took the Trade Value Index to 54.6, a 17 quarter-high. Overall, unit price increases were seen as particularly likely in machinery (56.5), toys (56.4) and electronics (55.5), with all their readings comfortably above the 50-point threshold. By contrast, timepieces (49), jewellery (48.6) and clothing (45.6) remained in the contractionary zone, with unit price rises seen as unlikely in these sectors given their relatively dull export performance as detailed in the overall Export Index.

The Procurement Index rose to 57.3 for 2Q18, a substantial increase on the 46.7 recorded for 1Q18 and the most positive overall procurement sentiment for nearly five years. Optimism was particularly high with regard to toys (62.9) and machinery (62.3), followed by electronics (57.7) and clothing (51.5). Timepieces (47) and jewellery (42.3), however, remained in contractionary territory, suggesting a possible fall in input costs and/or sluggish future demand.

With the Employment Index recording a 30-quarter high of 53.2 for 2Q18, this greater likelihood to hire again evidenced increased optimism with regard to export prospects over the near term. Toys (55.7) and electronics (54.2) sectors demonstrated the most robust hiring intentions, while machinery held steady at 51.9 and Jewellery dropped from 52.9 in 1Q18 to 51, staying just within expansionary parameters. Timepieces was back to the contractionary territory at 48 in 2Q18 after a brief enthusiasm in recruitment in the previous quarter. Clothing remained the sector least likely to be looking at expanding its workforce, with hiring sentiment rising from 43.1 in the previous quarter to 44.1, suggesting a possible reduction in employee numbers over the coming months.

Despite the overall positive sentiment, exporters remained cautiously optimistic with regard to the consequences of the ongoing trade friction between China and the US. Overall, though, the number expressing a pessimistic expectation was up, rising from 25.8% in 1Q18 to 42.8% for 2Q18. Just over half of all respondents (55.4%), however, remained confident that the dispute would not impair future export prospects. This, however, was well down on the 72.8% that shared the same sentiment back in 1Q18.

While the ongoing China-US trade dispute may be casting something of a shadow over Hong Kong’s future export prospects, few businesses have, as yet, suffered any undue consequences. Overall, while 42.8% of respondents expected negative repercussions at some point, 77.4% confirmed that their overall export performance remained unaffected at present. Around a fifth of the exporters participating in the survey, however, maintained that their current export levels would be higher had the dispute not occurred.

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